The damage done by ECB’s rate hikes in 2011 (the 3-graph version)

Since the failure of the Cyprus “bailout” the euro crisis has once again flared up and investors are once again have become nervous about that future of Europe’s common currency. I believe most of the present problems dates back to ECB’s fatal decision to hike interest rates twice in 2011.

The three graphs below illustrate this – while the US is slowly getting out of the crisis things have in fact gotten worse and not better since ECB’s first rate hike in April 2011.

First from the perspective nominal GDP growth.

NGDP US euro zone

Second the horrific euro zone labour market situation versus the gradual improvement in the US.

unemp euro US

Finally the price level – the deflationary environment in Europen is becoming in clear

Relative price level US euro

It is time for the ECB to end its deflationary policies and take action sooner rather than later.

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